Australia may have 'world's most overpriced property'

Thursday 15 July 2010

Article by Mozo

Australian property is the most overvalued in the world, new research has claimed.

A study of 20 countries by the Economist magazine found that Australian property had the poorest return on investment when based on the current ratio of house prices-to-rents to historic ratios.

It claimed that on the basis of such data, Australian property was the most overvalued at 61 per cent, followed by Hong Kong at 53 per cent and Spain at 50 per cent.

Australia’s rising house prices and difficult lending conditions have made it vital that buyers compare home loans in search of the best deals. One prominent economist, however, has questioned the basis of the Economist’s findings.

Glenn Otto, an Associate Professor from the School of Economics at the Australian Business School, told news.com.au the study may have done a disservice to the country’s property sector.

"Over time real interest rates have fallen relative to what they have been historically and this is an explanation why rent-to-price ratios might be this way," he said.

"It’s not a valid comparison to compare current prices to historic prices because real interest rates have fallen by about half."

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